The false promise of expected shortfall
The false promise of expected shortfall
So much ink has been spilled over the strengths and weaknesses of value-at-risk that it seems pointless to restate them at length here. In brief, my view is that VAR was a major advance over the disjointed framework of non-commensurable limits that preceded its introduction. It addressed the issue of exposure to short-term market fluctuations in a consistent way. What it did not do, and never claimed to do, was say anything about what “lurks beyond the 1% threshold”1, and the unfortunate fact is
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